Fossil-fuel subsidies are environmentally harmful, costly, and distortive. After a 3 years downward trend between 2013 and 2016, government support for fossil fuel production and use has risen again, in a threat to efforts to curb greenhouse gas emissions and air pollution, and the transition to cleaner and cheaper energy. Support across 76 countries increased by 5% to USD 340 billion in 2017, according to a new OECD-IEA report prepared for the G20.
OECD-IEA Update on Recent Progress in Reform of Inefficient Fossil Fuel Subsidies that Encourage Wasteful Consumption also shows that even in the group of 44 OECD and G20 countries, where fossil fuel support is still declining, the reduction has slowed down. Support in these countries was down 9% in 2017, a slower decline than the 12% recorded in 2016 and 19% in 2015.
The reversal comes as some countries reinstated stronger price controls on fossil fuels, in response to volatility in international oil prices, which made it harder to continue energy pricing and taxation reforms.
Some progress has nonetheless been made: the report finds that many countries, including Argentina, India, Indonesia and several Middle Eastern and Northern African economies, have continued to take steps to reduce support for energy consumption. Western Europe has completed its phasing out of hard-coal subsidies and efforts continue to end state aid to coal-fired power generation in the European Union.
Oil and gas industries in several countries, however, continue to benefit from government incentives, mostly through tax provisions that provide preferential treatment for cost recovery. Such policies go against domestic efforts to reduce emissions.
The report was presented to G20 energy officials ahead of the G20 Ministerial Meeting on Energy Transitions and Global Environment in Karuizawa, Japan, where countries reiterated their commitment to phasing out inefficient fossil fuel subsidies and encouraged countries that have not done so to volunteer for a Peer Review.
“This new OECD-IEA report signals a worrying slowdown in our efforts to phase out fossil fuel subsidies,” said OECD Secretary-General Angel Gurría. “The critical nature of the climate change crisis has never been clearer than it is today. Countries should be accelerating their reforms, not taking their feet off the pedal. We cannot promote inclusive and sustainable growth if we continue subsidising fossil fuels!”
The report combines the IEA’s price-gap approach to capture the transfer to consumers of policies that keep fossil fuels below reference prices and the OECD’s 2019 Inventory of Support Measures for Fossil Fuels, which takes stock of spending programmes and tax breaks used in the 36 OECD countries and eight emerging countries (Argentina, Brazil, China, Colombia, India, Indonesia, Russia and South Africa) to encourage fossil fuel production or use. These include measures that reduce prices for consumers or that lower exploration and exploitation costs for oil and gas companies.
Increasing transparency on the use of scarce public resources can help to keep up momentum for fossil fuel subsidy reform. Building on the evidence brought to the table by the OECD, G20 countries committed in Pittsburgh in 2009 to “rationalise and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption.” Since then G20 countries – China, Germany, Indonesia, Italy, Mexico and the United States – have completed voluntary G20 Peer Reviews of inefficient fossil fuel subsidies, and Argentina and Canada are just starting theirs. The OECD has been asked to play Secretariat role for all the country reviews, to chair and facilitate these processes, which have to date evaluated more than 100 government interventions relating to the production and use of fossil fuels.
“OECD evidence leaves no doubt” says Gabriela Ramos, OECD Chief of Staff and G20 Sherpa – “inefficient fossil fuel subsidies undermine global efforts to tackle climate change, aggravate local pollution, and are a strain on public budgets, draining scarce fiscal resources that could be invested in education, skills, and physical infrastructure. We urge all G20 countries to keep up the effort, and join the voluntary G20 Peer Reviews of inefficient fossil fuel subsidies.”
Recession Deepens as COVID-19 Pandemic Threatens Jobs and Poverty Reduction in Western Balkans
The COVID-19 pandemic has plunged the Western Balkans region into a deep recession, with drops in both domestic and foreign demand, coupled with disruptions in supply chains, forcing all six countries in the region into negative growth territory for 2020. According to the World Bank’s latest Regular Economic Report (RER), economic growth is forecast to contract by 4.8 percent in 2020, 1.7 percentage points lower than forecast in April. A second, stronger wave of the pandemic since mid-June is delaying economic recovery in the region. Travel restrictions and social distancing measures have also depressed growth in those countries more reliant on tourism.
The pandemic is further challenging labor markets in the region and threatening to undermine the progress that countries have made on improving the population’s welfare. By June, unemployment in the region had risen by a half of a percentage point, erasing 139,000 jobs. An additional 300,000 people are estimated to have fallen into poverty in Albania, Kosovo, Montenegro, and Serbia – a significant number, but less than half of the total that would have fallen into poverty had response measures not been put in place, notes the report.
“Like in much of the rest of the world, the COVID-19 pandemic is continuing to hit people hard in the Western Balkans, threatening threatening the health and economic well-being of people in all six countries,” says Linda Van Gelder, World Bank Country Director for the Western Balkans.
“As bad as this situation is, it would have been much worse had governments not taken swift measures from the outset of the crisis. The first priority remains getting the health crisis under control and limiting the economic damage. Policymakers in the region will then need to focus on strengthening their economic fundamentals for a resilient recovery.”
According to the report, all six countries in the region were quick to introduce policies to protect lives and livelihoods. The introduction of large job-retention schemes, including employee subsidies, helped arrest some of the worst impacts of the pandemic on employment, while social assistance programs, such as cash transfers, helped protect the most vulnerable populations in the region in the face of lockdowns and other restrictions.
Despite these measures, however, the gains in labor force participation made in the region over the last few years have now been erased and progress on poverty reduction is being imperiled by the crisis. Compounding these challenges are soaring fiscal deficits in the region, as governments continue to spend more to counter the economic contractions in the face of plummeting revenues. With the end of the economic crisis uncertain, pressure on labor markets and incomes is likely to continue for some months.
“Apart from improved health systems and robust social protection mechanisms, policymakers in the region will need to take measures to enhance human capital, build stronger institutions and strengthen the rule of law. The unfortunate situation of needing to spend more in a time of declining revenues puts additional pressure on governments in the region to prioritize fiscal sustainability, including through improving public spending and strengthening tax compliance,” says Linda Van Gelder.
The report acknowledges that the speed of recovery, in the short term, will depend on how the pandemic evolves, the availability of a vaccine that allows for the normalization of economic activity, and a sustained recovery for the region’s main trading partner – the European Union (EU).
Collapsing consumer demand amid lockdowns cripple Asia-Pacific garment industry
The COVID-19 pandemic has triggered government lockdowns, collapsed consumer demand, and disrupted imports of raw materials, battering the Asia Pacific garment industry especially hard, according to a new report released on Wednesday by the International Labour Organization (ILO).
The UN labour agency highlighted that in the first half of 2020, Asian imports had dropped by up to 70 per cent.
Moreover, as of September, almost half of all garment supply chain jobs, were dependent on consumers living in countries where lockdown conditions were being most tightly imposed, leading to plummeting retail sales.
In 2019, the Asia-Pacific region had employed an estimated 65 million in the sector, accounting for 75 per cent of all garment workers worldwide, the report reveals.
Although governments in the region have responded proactively to the crisis, thousands of factories have been shuttered – either temporarily or indefinitely – prompting a sharp increase in worker layoffs and dismissals.
And the factories that have reopened, are often operating at reduced workforce capacity.
“The typical garment worker in the region lost out on at least two to four weeks of work and saw only three in five of her co-workers called back to the factory when it reopened”, said Christian Viegelahn, Labour Economist at the ILO Regional Office for Asia and the Pacific.
“Declines in earnings and delays in wage payments were also common among garment workers still employed in the second quarter of 2020”.
Women worst impacted
As women comprise the vast majority of the region’s garment workers, they are being disproportionately affected by the crisis, the report tracked.
Additionally, their situation is exacerbated by existing inequalities, including increased workloads and gender over-representation, as well as a rise in unpaid care work and subsequent loss of earnings
To mitigate the situation, the brief calls for inclusive social dialogue at national and workplace levels, in countries across the region.
It also recommends continued support for enterprises, along with extending social protection for workers, especially women.
The ILO’s recent global Call to Action to support manufacturers and help them survive the pandemic’s economic disruption – and protect garment workers’ income, health and employment – was cited as “a promising example of industry-wide solidarity in addressing the crisis”.
“It is vital that governments, workers, employers and other industry stakeholders work together to navigate these unprecedented conditions and help forge a more human-centred future for the industry”, upheld Ms. Miyakawa.
Nuts and bolts
The study assessed the pandemic’s impact on supply chains, factories and workers in Bangladesh, Cambodia, China, India, Indonesia, Myanmar, Pakistan, Philippines, Sri Lanka and Viet Nam.
It is based on research and analysis of publicly available data together with interviews from across the sector in Asia.
A few ‘green shoots’, but future of global trade remains deeply uncertain
Estimates show that world trade will drop by five per cent this quarter, compared with the 2019 level. While this is an improvement over the nearly 20 per cent decline in the second quarter of the year, it is still not enough to pull trade out of the red.
Uncertainty aggravating trade
“The uncertain course of the pandemic will continue aggravating trade prospects in the coming months”, said UNCTAD Secretary-General Mukhisa Kituyi.
“Despite some ‘green shoots’ we can’t rule out a slowdown in production in certain regions or sudden increases in restrictive policies.”
While the projection represents a decrease, the figure is a more positive result than previously expected, as UNCTAD had projected a 20 per cent year-on-end drop for 2020, back in June.
Trade trends have improved since then, the agency added, primarily due to the earlier than expected resumption of economic activity in Europe and east Asia.
China leads recovery
The report points to China, which has shown a notable trade recovery.
Chinese exports had fallen in the early months of the pandemic and stabilized in the second quarter of the year, before rebounding strongly in the next quarter, with year-over year growth of almost 10 per cent.
“Overall, the level of Chinese exports for the first nine months of 2020 was comparable to that of 2019 over the same period”, the report said.
Within China, demand for goods and services has also recovered. Imports stabilized in July and August, and grew by 13 per cent in September.
Growth and decline in Asia
India and South Korea also recorded export growth last month, at four per cent and eight per cent, respectively.
UNCTAD reported that as of July, the fall in trade was significant in most regions except east Asia.
West and south Asia saw the sharpest declines, with imports dropping by 23 per cent, and exports by 29 per cent.
The report also includes an assessment of trade in different sectors, with the energy and automotive industries hardest hit by the pandemic.
Meanwhile, sectors such as communication equipment, office machinery, and textiles and apparel, have seen strong growth due to the implementation of mitigation responses such as teleworking and personal protection measures.
Wealthy nations benefit from COVID-19 medical supply trade
The report also gives special attention to COVID-19 medical supplies, which include personal protective equipment, disinfectants, diagnostic kits, oxygen respirators and related hospital equipment.
Between January and May, sales of medical supplies from China, the European Union, and the United States, rose from $25 billion to $45 billion per month. Since April, trade has increased by an average of more than 50 per cent.
However, the authors found wealthier nations have mainly benefited from this trade, with middle and low income countries priced out from access to COVID-19 supplies.
Residents of high income countries have on average benefited from an additional $10 per month of imports of COVID-19 related products. This compares to just $1 for their counterparts in middle income countries, and 10 cents for those in low income nations.
UNCTAD warned that if a COVID-19 vaccine becomes available, the access divide between wealthy and poor countries could be even more drastic.
The report urges governments, the private sector and philanthropic organizations to continue mobilizing additional funds to fight the pandemic in developing countries and to support financial mechanisms that will provide safe and effective COVID-19 vaccines to poor countries
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